Marc S. Morrison is a manager in the Houston office of Alvarez & Marsal. Alvarez & Marsal Business Consulting helps companies grow stronger bypartnering with management to identify opportunity, enhance efficiency andmaintain competitive advantage.
Developing Six-Sigma programs for business process improvement has become the latest craze for many companies, having evolved into full-fledged programs with unique training regimens and belt-based hierarchies. But are these programs delivering on their promise? Are differences in implementation creating different results? If so, how can managers ensure that optimal results are achieved and how can an executive ensure long-term longevity to this program? What are the pitfalls to a successful Six-Sigma program?
Are Differences In Implementation Creating Different Results?
In a word, yes.
Some organizations have made Six-Sigma a strategic initiative with a permanent head, where others have provided training to employees and rolled it out in a less structured manner. For example, training regimens for green belt training have ranged from lecture-based sessions as short as three days without any project-related work to two one-week sessions requiring completion of a project that achieves a specific cost savings. More disciplined investment in training, with a hands-on component and corporate-aligned measurements provide greater return to companies.
The different outcomes are tellingly illustrated from a division of a Fortune 500 company. It initially rolled out its Six-Sigma program using a consultant that conducted abbreviated lecture-based green-and black-belt training. Employee participants were not assigned any Six-Sigma projects during the course and only a few were assigned projects after participating in the class. The division did not provide formal measurement tools or significantly change its plants' current improvement program initiatives to be consistent with Six-Sigma. The effort resulted in limited savings.
After one year, the company rolled out the program a second time with much more rigor. The company required each participant to have an approved improvement project before being allowed to attend the class. This project allowed participants to use the tools of the training. In addition the company added dedicated staffing to support the initiative and tied the Six-Sigma improvement initiatives into the plants' performance measurements. This training method reduced operating costs as well as inventory levels.
The more intensive, practical training immediately spawned more projects and had the impact of speeding up the return in the investment as well as accelerating the development of additional cost savings projects. Managers were much more attuned and supportive of the Six-Sigma initiative, leveraging it to achieve their immediate objectives. The plants also benefited from the additional division-level support and periodic status meetings to facilitate each project's completion.
Six-Sigma Savings, Real Or Manufactured?
Though the application of Six-Sigma initiatives differs greatly, these programs are delivering some amount of value. Leading organizations claim that they have achieved billions of dollars in productivity gains through the late 1990's through their Six-Sigma initiatives, while other lesser-known organizations have credited Six-Sigma with millions of dollars in annual savings in the first year.
However, one must wonder how much of the savings would have been achieved without a Six-Sigma program. Have these programs really improved the significant savings that the companies are touting? Some organizations do not have a formal process for capturing savings or any means for validation. For example, one company conducted an operational assessment as it was preparing for a new ERP rollout. The assessment documented observations, implications, and recommendations at the plant site. One of those recommendations was added to a Six-Sigma program, which was credited in reducing the receiving lead- time from four days to less than a day. This project had not been 'defined' by the Six-Sigma process, but rather had been identified during a separate assessment and then labeled a Six-Sigma project.
Other examples include a company at which Six-Sigma program directors met with team leaders of an inventory reduction initiative that had achieved significant results prior to the rollout of the Six-Sigma program, and consequently took credit for the costs savings.
In another situation, a Six-Sigma program lead was documenting savings before the discrete initiatives were even implemented.
To prevent these situations from occurring, organizations need to define the policies and procedures to calculate Six-Sigma savings and identify a review and validation mechanism using finance and accounting. Initiatives should be monitored in the same ways capital projects and other major efforts are monitored. The appropriate financial adjustments should be made to reflect the savings in future budgets to support the program's institutionalization.
Marc S. Morrison is a manager in the Houston office of Alvarez & Marsal. Alvarez & Marsal Business Consulting helps companies grow stronger bypartnering with management to identify opportunity, enhance efficiency andmaintain competitive advantage.
